Competition Commission of India (CCI) has been set up with the objective to prevent the practices having an adverse effect on the competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets[1]. CCI acts as a watchdog and looks into matters like anti-competitive agreements, abuse of dominant position by an enterprise, unfair trade practices practiced by the enterprise, combinations (mergers, acquisitions, amalgamations, and joint ventures), demergers, cartels, etc.
Section 2(c) of Competition Act 2002, define cartels as an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services. In simple words, cartels are the agreements between the market competitors to have control over the market. They are difficult to detect as they are the agreements entered under great secrecy and may either be verbal or in writing.
The chances of having a positive impact on the economy are zero in the case of cartels. Enterprises dealing in cartelization enjoy benefits by delivering less value in terms of products and services. The customers and society suffer by paying more than needed for the inferior products or services rendered. Usually, cartels raise the prices of the products or services rendered above the competitive prices, resulting in injury not only to customers but to the economy of the nation also.
To prevent the interest of the customers and enterprises and to sustain fair competition in the market, CCI adopted the method of the leniency program. This program provides immunity or reduction in sanctions for cartel members that co-operate with competition enforcers. Competition Commission of India (Lesser Penalty) Regulations 2009, regulate the cases of cartels. Leniency Programme provides protection to those who step forward on their own and submit information truthfully, who otherwise have faced the strong action if their action was uncovered by the Commission. It is an incentive to those who share the confidential or secret information with the authority in a bona fide intention and cooperate with the government in identifying such practices prevailing in the market.
CCI has always been active in the investigation and prosecution of cartels and as well as other provisions of the competition act. In 2018, the CCI passed decisions on 24 cartels. Out of these, CCI found infringement in 9 cases. Section 46 of the Competition Act, 2002 provides for such leniency provision. The Lesser Penalty Regulations were amended in 2017, and not only the enterprise but individuals involved in the cartel on behalf of the enterprise could benefit from this scheme. There is no concept of criminal prosecution under the Competition Act. The quantum of such penalty stands as
The first applicant may still be granted up to 100% reduction in penalty;
The second applicant may enjoy a reduction of up to 50 %; and
The third or any subsequent application may be granted relaxation in penalty up to 30%
In a recent order, the Competition Commission of India has granted Panasonic Energy India Co. Ltd. ("Panasonic India") and its officeholders, a 100% penalty reduction under the leniency regime provided by Section 46 of the Competition Act, 2002. It was noted that the leniency application was filed by the Panasonic Japan regarding the involvement of zinc-carbon dry cell batteries manufacturers i.e. Panasonic Energy India Co., Eveready Industries India Limited (Eveready) and Indo National Limited (NIPPO) in the cartel and for violating the provision of Section 3 of Competition Act, 2002.
It was revealed that the Cartel was formed to control the production, distribution and market price of the zinc-carbon dry cell batteries in the market. It was also brought out in the public that to prevent the market share of each manufacturer and not to raise a war against the prices, all three entered into a secret formation to have control over the market.
The investigation by the Director General (DG) stated that:-
Officers of Eveready, NIPPO and Panasonic used to have personal meetings regularly to decide when and how the new increased prices will take effect.
All the meetings were done held under the aegis of the Association of Indian Dry Cell Manufacturers (AIDCM).
It was also noted that all the 3 manufacturers were not only involved in coordinated price increase but also monitored and controlled prices of zinc-carbon dry cell batteries to eliminate any kind of “Price Competition” in the market.
The Manufacturers also shared the confidential and sensitive information amongst themselves regarding operating margin rates, wholesale offer price, etc.
Not only the distribution channel was controlled by the manufacturers but also the supply chain was scrutinized and organized geographically in the market to establish the higher prices of batteries.
CCI considered all the factors and observed that:-
The cartel has been into existence for in and around 6 years.
The cartel controlled the prices of the zinc-carbon dry cell battery in the market.
The cartel had an adverse effect on the competition in the market and was against the interest of the consumers.
It was held by the CCI that the leniency application filed by the Panasonic Japan made true and vital disclosures, which enabled the Commission to form a prima facie opinion regarding the existence of the cartel. Further, the Commission noted that Panasonic India, Eveready, and NIPPO provided a crucial piece of evidence regarding the modus operandi of the cartel and extended full and continuous cooperation. Taking into account all these factors, the directors, officers, and employees of the Panasonic Company were granted 100% reduction in the penalty, Eveready was given the 30% reduction in the penalty and NIPPO was given a 20% reduction in the penalty.
Universally, Cartels are considered as the innocuous agreements prevailing in the market. One of the foremost objectives of competition policy is to root out cartels from the market. Strong sanctions are a fundamental component of an effective antitrust enforcement policy against the cartels. In India, participating in a cartel is a civil offense. In India, CUTS (Consumer Utility and Trust Body) is another organization looking into the working of the cartels. It believes that disciplining the cartels will bring a breakthrough especially in the cases of a developing country. This organization believes that it is necessary to impose sanctions and penalties on the enterprises and individuals as they hurt the consumers and stagnant the growth of a developing economy.
Though there are many challenges to look into for the efficient functioning of the Leniency Regime. The role of the Director-General regarding the consideration of the information as to be confidential and about its disclosure. This provision is the preventive provision for the members involved in a cartel but does not accomplish the objective of reduction in cartel formation. A much stronger law is required by the statues to prevent the cartel formation in the first place.
The Lesser Penalty Regulations has bought about some long-awaited changes to the leniency regime. Though the latest amendments act as a strong force of sanction against the enterprises and individuals indulging in such practices still there is a long road to cover to completely eliminate this anti-competitive disease from the market which abides on fair play and transparency.
[1] Competition Act, 2002
Submitted by,
Sanket Khandelwal,
Year V, B.A.LL.B.,
Amity Law School, Noida.
(Image used for representational purpose only. Image Courtesy: https://www.cfo-india.in/article/2019/01/25/2018-%E2%80%93-antitrust-year-review )